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LIQUIDITY MANAGEMENT AND FINANCIAL PERFORMANCE OF MEDICAL FIRMS IN NIGERIA.
(A CASE STUDY OF LISTED MEDICAL FIRMS IN PORT HARCOURT)
ABSTRACT
This project work examinesliquidity management and financial performance of medical firms in Nigeria. Liquidity is a concept that many investors and managers fails to consider or understand and as a result their financial plans fail to come through in such critical times. However, the fact is liquidity or a lack therefore causes more financial problem than almost any other aspect of finance. The importance of this work, is to know the impact of liquidity management on financial performance of medical firms in Nigeria. Data for this study where obtained through questionnaire which are used to test the null hypothesis i.e Ho: there is no significant relationship between liquidity management and financial performance of medical firms. The pearson product moment correlation co-efficient is used for testing the null hypothesis and the student t-test for testing the r. the result shows that since the tc is higher than the tt value the null hypothesis is rejected and the alternate hypothesis is accepted. (i.e. there is a significant relationship between liquidity management and financial performance of medical firms in Nigeria). It was found that there are measures to manage liquidity problems of medical firms and that cash management has a direct link with financial performance of medical firms. Finally, management of medical firms should properly manage their liquidity to improve performance, more attention should be given to liquidity problems so as to proffer solution and also derive ways of reducing, if not eliminating liquidity risk.
TABLE OF CONTENTS
TITLE PAGE iii
CERTIFICATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
DECLARATION v
ABSTRACT vi
TABLE OF CONTENTS vii
LIST OF TALBES ix
CHAPTER ONE 1
1.0 BACKGROUND OF THE STUDY 1
1.1 STATEMENT OF PROBLEM 3
1.2 OBJECTIVE OF THE STUDY 5
1.3 RESEARCH QUESTIONS 5
1.4 STATEMENT OF HYPOTHESIS 6
1.5 SIGNIFICANCE OF THE STUDY 7
1.6 SCOPE OF THE STUDY 8
1.7 DEFINITIION OF TERMS 9
REFERENCE. 10
CHAPTER TWO 11
LITERATURE REVIEW 11
2.1 INTRODUCTION 11
2.2 CONCEPTUAL FRAME WORK 11
2.3 FINANCIAL PERFORMANCE 12
2.4 PROFITABILITY 13
2.5 RETURN ON ASSETS. 14
2.6 THEORETICAL FRAME WORK 15
2.6.1 LIQUIDITY PREFERENCE 15
2.6.2 THE SHIFTABILITY THEORY 16
2.6.3 THE ANTICIPATED INCOME THEORY 17
2.7 EMPIRICAL LITERATURE 18
2.7.1 ASSETS-LIABILITY REVIEW 18
2.7.2 IMPACT OF LIQUIDITY ON THE FINANCAIL 20
2.7.3 EFFECT OF LIQUIDITY ON PROFITABILITY 23
2.7.4 EFFECT OF LIQUIDITY ON RETURN ON CAPITAL 27
2.7.5ASSET QUALITY 30
2.7.6 CAPITAL STRUCTURE 30
REFERENCES 33
CHAPTER THREE 35
3.0 RESEARCH METHODOLOGY 35
3.1 RESEARCH DESIGN 35
3.2 POPULATION OF THE STUDY 36
3.3 SAMPLE/SAMPLING TECHNIQUES 36
3.4 INSTRUMENT OF DATA COLLECTION 37
3.5 DATA ANALYSIS TECHNIQUES 37
REFERENCES 40
CHAPTER FOUR 41
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 41
4.1 INTRODUCTION 41
4.2 DATA PRESENTATION 41
4.3 DATA ANALYSIS 42
4.4 HYPOTHESIS TESTING 47
CHAPTER FIVE 51
SUMMARY, CONCLUSION AND RECOMMENDATION 51
5.1 INTRODUCTION 51
5.2 SUMMARY OF FINDINGS: 51
5.3 CONCLUSION 52
5.4 RECOMMENDATION 53
BIBLIOGRAPHY 55
APPENDIX I 58
APPENDIX II 59
LIST OF TALBES
Table 4.2.1 41
Table 4.3.1 The term liquidity management 42
Table 4.3.2 The term financial performance 42
Table 4.3.3 43
Table 4.3.4 44
Table 4.3.5 44
Table 4.3.6 45
Table 4.3.7 46
Table 4.3.8 46
Table 4.5Summary of responses from respondents 46
Table Computation of peason product momentcorrelation co-efficient 46
CHAPTER ONE
1.0 BACKGROUND OF THE STUDY
An assets management is never ending leg of war. This is pitched between efficient liquidity management on one hand and profitability on the other.
A liquidity and profitability are two inherent goals in a medical firm as in other service rending firms. Medical firm’s managers will continue to experience, conflict of trying to provide efficient mechanism of addressing their firms liquidity:
Liquidity: According to Mahavidyetaya et al (2010), the term liquidity refers to the capability of a firm to meet short-term obligations by converting the short-term assets into cash, without suffering any loss. The based committee on banking supervision (2013) assets are considered to be high-quality liquid assets if, they can be easily and immediately converted into cash at little or no loss of value. Bhumia (2010) refers to liquidity as the ability of a firm to meet its short-term obligations. Dalgaard (2009) described liquidity as the degree to which an asset or security can be bought or sold in the market without affecting the assets price. He further explains that liquid asset is characterized by a high level of trading activity and plays a vital role in the functioning of financial market.
Markets are liquid when those who have assets holdings can sell them at prices that do not involve considerable losses, so as to gain the financially need to fulfill other commitments. (Amihud 2002). Liquidity plays a crucial role in the smooth operations of a business firm. A company should ensure that, it does not suffer from lack of or excess liquidity to curb, its short-term obligation when they fall one in an attempt to achieve the wealth maximization goal of the shareholders. A study of liquidity management is of major importance to both the internal and the external analysts because of its close relationship with day to day operations of a business firm (Bhunia et al, 2011).
Medical firms (private) as other, service rending firms are some extent, a business oriented firms with shareholdersand other investors, interested in profitability. To achieve this goal, medical firms might pursue profitability by investing only on high yielding less liquid assets that is achieving profitability at the expense of liquidity which is dangerous. It is always necessary to strike a balance between liquidity and profitability in other to achieve efficient management.
It is against the background of the foregoing that it has become, necessary to research into the importance of liquidity management of not only medical firms, but also all other service rending firm’s and business organization.
1.1 STATEMENT OF PROBLEM
Statement of problem is a specific result that a person or system aims to achieve within a time frame and with available resources (Google scholar.com).
As uncertainty led funding sources to evaporate during the recent financial crises, many business firms quickly found themselves short of cash to cover their obligations as they fall due (Bordeleau 2010). Liquid assets such as cash and government securities) generally have a relatively low return, holding them can impose an opportunity cost. A study undertaken by Akhwale (2014), research on the relationship between liquidity and profitability for companies listed on the Nigeria stock exchange (NSE). The study concludes that there exists a significant relationship between liquidity and profitability of firms. Maina (2011) found the relationship between the liquidity and profitability was weak and also that, all the independent variables had a significant relationship with return on assets except the quick ratio and cash conversion cycle. Wainbu (2013) found out that there was a positive relationship between profitability and liquidity however, the coefficients from the study were not significant.
Following the above in the previous studies and absence of a conclusion on the same topic this study seek to find out the relationship between liquidity and financial performance of medical firms and whether performance is better in those institution which hold high or low levels of liquidity.
1.2 OBJECTIVE OF THE STUDY
The following are the main objectives of this research work.
i. To establish the effect of liquidity on the financial performance of medical firms.
ii. To identify and demonstrate the relationship between liquidity management and financial performance of medical firms.
iii. To identify the measures to be taken in order to properly manage medical firm’s liquidity.
iv. To focus attention on the impact of liquidity management on medical firms financial performance.
1.3 RESEARCH QUESTIONS
The study sought to answer the following research questions.
a. Does liquidity have an effect on the financial performance of medical firms?
b. What is the relationship between liquidity management in medical firms and financial performance?
c. Can there be any measure to be taken to manage the liquidity problem and the performance of medical firms?
d. Can focusing more attention in liquidity problem solve the problems of financial performance in medical firms?
1.4 STATEMENT OF HYPOTHESIS
A hypothesis according to Nwoye, is simply “a conjective a tentative explanation of a scientific problem. It provides a guide to the research activities and states in advance what is to be proved in the work.
The above being obvious the following hypotheses are to be used in this research work.
H0: Liquidity Management has no impact on profitability
H0: Liquidity Management and Profitability is not significantly correlated
H0: Liquidity does not solve the problem of financial performance.
1.5 SIGNIFICANCE OF THE STUDY
The significance of this research work cannot be over emphasized. It will prove to be of relevance to the following classes of the society.
Managers of firms: The findings of this work will benefit management and staff of not only medical firms, but also other firms who will gain understanding into how their organizations can effectively manage their liquidity level and understand its importance and observe the trend of the impact of liquidity on financial performance.
In addition, the study will offer an understanding on the importance of adopting a fitting liquidity practices and thus offer, competitive advantages to the firm.
Academicians: The research work is hope to serve as a tool to stimulate interest in further research in future. The study will add to the already existing body of knowledge on liquidity management and how liquidity impacts on financial performance.
Recommendations made will be of significance to those who may wish to carry out further study in the field.
Policy makers: Understanding of the liquidity management and its impact on medical firm’s financial performance will help policy makers’ government and others to design targeted policies and programs that will actively stimulate the growth and sustainability of medical firms.
Finally, the study will also enable the investors to know the kind of information to be disclosed by medical firms on the financial statement as pertaining to liquidity and financial performance.
1.6 SCOPE OF THE STUDY
It is important to note that the scope of this research, project is strictly limited to a proper study of the role of liquidity and financial performance in medical firms in order to draw a logical conclusion on the basis of facts about the causative factors, effect, dimensions and solution to liquidity management in medical firms in Nigeria.
1.7 DEFINITIION OF TERMS
1. Firms Liquidity: This is the ability of a firm to settle their current liability whenever they fall due
2. Profitability: The degree to which a business or activity yields profit or financial gain. The ability of a business to earn a profit.
3. Market Securities: Are securities or debts that are to be sold or redeemed within a year. These are financial instruments that can easily be converted to cash as government bonds common stock or certificates of deposit.
4. Firm: Is a business organization, such as a corporation, Limited Liability Company that sells goods and service to make profit.
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